How Business Entities Can Secure Residential Loans

Residential loans are often made to individuals and couples, helping them secure property to improve their lives and financial standing.

However, residential loans can also be made to business entities. These loans help businesses gain operational advantages, and can be the difference between the long term success or failure of a business.

With residential loans for businesses, it’s important to understand the various qualifying measures, as well as the different types of businesses. With this information, you can begin the process of qualifying your entity for a residential loan.

Residential Loans Made to Business Entities

The Legal Review

Before the residential loan for a business can occur, the bank or lender will need to conduct a legal review. The bank will require that the members and partners, and sometimes the shareholders, be guarantors on the loan. Certain leaders and owners in the organization may also be required to submit separate individual applications for specific approval. To qualify the loan, a guarantor’s personal credit and financial information will be considered. This can include credit scores, assets, liabilities, and more.

Also, the operating term for the organization must be longer than the specific term of the loan, and a business entity application will need to be filed, which will essentially operate as the ownership statement.

Outside of California, lenders will require additional information. It’s best to talk with a professional who can guide you through the complexities of filing documents for organizations formed outside of California.

Individual Credit Checks and Personal Guarantees

In many cases, there are two important factors for securing a loan to business entities. The first is a credit check into one or more members of the organization. Depending on the nature of the business, the division of ownership, and the roles of certain members, there will likely be credit requirements for certain people. In most cases, majority shareholders, managing members, and general partners will need to provide credit information that lenders will use to approve or reject a loan.

Another factor in securing a residential loan for business entities is the personal guarantee. While some businesses are designed to shield members from financial risk, a bank will often require a personal guarantee on the loan. This document helps banks and lenders reduce risk by increasing the chances of full financial recovery in the event of a default.

Different Businesses are Qualified Differently

When seeking approval for a residential loan made to a business entity, many of the variables will change depending on the type of business. Whether your business is a general partnership, limited partnership, corporation, or LLC, there will be different requirements that affect how you get approved.

General Partnerships

In the business world, there are generally two types of partnerships: general and limited. All partnerships, regardless of type, are written agreements between two or more people, although they can sometimes involve entities like businesses and estates. The purpose of a partnership is to create and conduct business together, creating (hopefully) better results for everyone involved.

First, we will discuss the specifics of residential loans for general partnerships. In this situation, the general partners will carry the burden of liability for the entity, and qualification will require a complete credit package from the general partners or a single partner who will sign the personal guarantee documents.

Limited Partnerships

Next on the list is limited partnerships. While these are similar to general partnerships, they have a few slight, but important differences. People or entities involved in limited partnerships are only responsible for their respective share or contributions to the total partnership. Here’s a very rough example: If a limited partnership defaults on a $1 million loan, and a specific partner is only responsible for a quarter of the partnership, this partner can only be held responsible for a quarter million dollars. (In many cases, the “general partner” can be held responsible for entire liability.)

Qualification for a residential loan to a limited partnership is dependent on a complete credit package from the partner or partners and possibly a qualified partner that will sign a personal guarantee on the loan. In most cases, the bank or lender will not require a personal repayment guarantee from any general partners because they are already liable to the company. However, limited partners will need to sign a personal guarantee for residential loans.

Corporation

Organizations that are authorized by law and made of stockholders for the specific purpose of funding and operating a business are considered corporations. They are, in almost all cases, operated by representative management that is overseen by a board of directors. The corporation can issue shares of stock that represent a percentage of the business,and anyone who owns stock is considered a “stockholder.”

To qualify a corporation for a residential loan, a complete credit package will be needed. This credit package will need to include information on the majority owner or owners. A majority owner will also need to make a personal guarantee on the loan.

Limited Liability Company (LLC)

Often called an “LLC,” a limited liability company will combine the benefits of both a corporation and a partnership for the purposes of conducting business and securing loans. With an LLC, members are shielded from personal liability for debts and legal claims against the organization. This is similar to how shareholders are shielded in a corporation. However, the LLC is often taxed for state and federal income purposes in a way that reflects partnerships.

To qualify an LLC for a loan, the majority ownership members or managing member will need to provide credit information. There will also be a personal guarantee requirement for ownership members and managing members.

Quality Loans for Hard-Working Business

We would be proud to help increase your chances of success. Contact our team today to learn how San Diego Purchase Loans can work to get you approved for affordable residential loans, no matter what type of business you own.

You deserve a loan that can improve your overall operations, and with our common-sense approach to lending approval, we make the process easier and more convenient.

Testimonials

“I must say I was extremely impressed with the professionalism and quick response from Chad Baker & his entire team. I screened over 5 lenders before selecting the Baker Team & boy am I happy customer. It’s evident that customer service is a priority for these folks.”

Everything about our transaction with this lender was perfectly explained to us, easy to do, and they were able to help us get our loan closed ahead of schedule. It was a perfect 10 and we couldn’t have been happier with the whole thing

“Chad and his team were fantastic. They were incredibly responsive to us and our needs. Chad laid out several refinance options for us, and was very supportive when we decided on the option we felt was best for our family. Chad and his team worked our deal and got our mortgage funded incredibly fast, with excellent service and even took the time to thank us personally once we funded. I can’t recommend Chad enough!”

I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content.
Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox.
Chad Baker is Regional Manager for LendUS. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2017.
Got a question for Chad? Call (858) 353-8331 or submit your question online